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Consumers to pay $2.4 billion in Comcast/NBC merger? Really?
A new economic study written for local cable television providers concludes that the proposed merger of Comcast and NBC Universal would ultimately cost consumers $2.4 billion more in subscription fees than they would fork over otherwise. The American Cable Association released the report on Monday along with dire words from its President, Matthew Polka.
"Regulators must protect consumers and competition from a transaction whose benefits are vastly outweighed by its harms," Polka warned. "Without meaningful and cost effective conditions on the Comcast-NBCU transaction, regulators also run the risk of crippling effective competition in the pay-TV distribution market."
The Federal Communications Commission and the Department of Justice have been evaluating the proposed union since December 2009, when Comcast and NBC Universal's owner General Electric announced the deal. Under the arrangement, Comcast would own 51 percent of the new entity—GE the rest.
Two harmful costs
Former FCC Chief Economist William Rogerson wrote the analysis. It suggests that the merger would distort the video market and raise prices in two ways—the first vertical; the second horizontal.
First, an alleged vertical harm—the combination would allow Comcast/NBCU to boost fees for NBC network programming to competing cable companies. That, of course, would include many of ACA's members, RCN, WOW!, Wave Broadband, Broadstripe, and SureWest prominent among them.
Second, control over the merged companies key programming assets would permit Comcast-NBCU to raise prices from the horizontal market power, this "derived by jointly negotiating NBCU's suite of highly rated NBCU national cable programming networks and/or NBC O&O TV stations with Comcast's key programming asset: Regional sports networks (RSNs). This combination would allow Comcast-NBCU to demand higher fees from all pay TV providers operating in markets served by a Comcast RSN."
The study then estimates the pass-along vertical cost to pay-TV couch potatoes at $1.43 billion and the "horizontal harm" at $1.14 billion.
We're wondering if describing the merged entity's market power in both vertical and horizontal terms allows the analysis to extrapolate two consumer costs instead of one from the result. Comcast, of course, has no doubt that the report is way off base.
"Once again, ACA has submitted flawed economic analysis," the cable giant told us. "It relies on assumptions and calculations that are unsupported, directly contradicted by available data, and contrary to previous FCC rulings. After having more than nine months to make its case, and after two prior attempts that we thoroughly rebutted, ACA is making an obvious attempt to further delay the approval of the Comcast NBCU transaction. ACA's efforts should be rejected by the FCC on both substantive and procedural grounds."
Strings attached
It doesn't seem like ACA is seeking a delay so much as asking the government to attach various strings to the union. Among them, competing pay television providers that can't reach deals with Comcast-NBCU for its programming would be able to appeal the dispute to "binding baseball-style commercial arbitration," presumably supervised by the government.
In baseball-style arbitration, two parties submit their competing offers to a third party mediator. The arbitrator then picks one of the proposals (sorry—she can't come up with something in between).
And in ACA's scenario, smaller operators who can't afford this sort of negotiating would just have to pay a fee to an NBC station or RSN that is five percent greater than the lowest tithe in that market for the same fare.
It's unclear when the government is going to make a decision about this case. The FCC just approved confidential treatment for a slew of data that NBCU and Comcast want to submit, suggesting that the horse trading stage of the process remains unfinished.
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